Putting an end to rumors, Actavis plc (ACT) confirmed that it will be acquiring Botox maker Allergan (AGN) in a cash and stock transaction ($129.22 in cash and 0.3683 Actavis shares for each share of Allergan common stock) valued at about $66 billion or $219 per share. Brent Saunders, Actavis’ CEO and President, will lead the combined company. While Allergan’s shares were up 5.31% on the news, Actavis’ shares gained 1.71%.
How Will Actavis Benefit?
With the Allergan acquisition, Actavis will be able to strengthen its global presence especially in Canada, Europe and Southeast Asia and other high-value growth markets like China, India, the Middle East and Latin America. Meanwhile, the combined U.S. sales force will ensure increased marketing reach.
The addition of several blockbuster therapeutic franchises will boost Actavis’ North American Specialty Brands business significantly. Actavis said that, on a pro forma basis for the full year 2015, the combined company will have three blockbuster franchises (ophthalmology, neurosciences/CNS and medical aesthetics/dermatology/plastic surgery) each with annual revenues of more than $3 billion.
Meanwhile, the specialty product franchises (gastroenterology, cardiovascular, women's health, urology and infectious disease) will have combined revenues of about $4 billion.
Actavis expects combined pro forma revenues to cross $23 billion in 2015 and the deal to be earnings accretive (double-digit accretion) within a year. Revenues generated by Actavis’ brands business as well as international revenues will double with this acquisition. Pro forma international revenues in 2015 are expected to be about $5 billion.
Actavis expects annual synergies of at least $1.8 billion starting from 2016 – this is in addition to the $475 million of annual savings previously announced by Allergan. Actavis intends to invest $1.7 billion every year on R&D. Once the acquisition goes through, Actavis’ pipeline should be boosted by about 15 near- and mid-term projects.
The combined company is expected to generate free cash flow of more than $8 billion in 2016 and substantial growth thereafter, which should allow the rapid repayment of debt.
Our Take
The Actavis-Allergan combination looks good to us. With this acquisition, Actavis, which was previously known for its strong presence in the generics market, will find itself in the company of the top 10 pharmaceutical companies across the world based on sales. Allergan and Actavis have complementary product portfolios and ample scope for generating cost synergies.
Actavis’ decision to acquire Allergan is in line with its strategy of boosting its branded product portfolio. Actavis has been on an acquisition spree over the past several quarters and recently concluded deals include the Durata acquisition (to boost its infectious disease portfolio), the Forest Labs acquisition (significantly boosted branded products portfolio), the Furiex Pharmaceuticals, Inc. acquisition (targeting the gastroenterology market), the Warner Chilcott acquisition (led to the shifting of domicile to Ireland along with the expansion of the branded products portfolio) and the Actavis Group acquisition (expanded presence significantly).
The Allergan acquisition, slated to close in the second quarter of 2015, will also boost Actavis’ branded segment significantly.
Meanwhile, Valeant Pharmaceuticals International, Inc. (VRX), which has been looking to acquire Allergan for quite some time, issued a statement saying that it cannot justify paying $219 or more per share for Allergan to its shareholders.
Both Actavis and Allergan are Zacks Rank #2 (Buy) stocks. Valeant is better-ranked with a Zacks Rank #1 (Strong Buy). Another Zacks Rank #1 stock is Biogen Idec (BIIB).
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